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Tuesday, September 9, 2014

Going To War

Many communities
have horror stories with lessons for the rest of us. Here is one such story, with events happening
many years prior to the community becoming our client. The following occurred within a six month
period, back in 2003:

The community was
finalizing a legal settlement requiring reconstruction of a 12-unit
building. Two owners held all these
units and were obligated for interior reconstruction costs, with all common
elements and shell of the building payable by the community. The Association’s insurance did not cover any
of the cost due to a vacancy exclusion clause, triggered when a vagrant burned
down the building.At the same time,
the community had revolted against a necessary 40% increase in
assessments. Prior to the annual
meeting, many long-term delinquent homeowners paid off their debts, and voted
to shift control of the Board to themselves.
It was incorrectly believed that
the new Board would be able to somehow reverse the legal obligation to rebuild the
destroyed building.

Things had gotten
off to a rocky start. The new Board members
had difficulty understanding HOA regulations and in some instances ignored
these altogether. The treasurer immediately alienated all vendors before the
new Board was able to line up replacements - he suspended all payments and his inquisition
against the vendors eventually drove many away.
The management company terminated its contract. Vendor liens cropped up. Within months the President outraged the few
remaining vendors, and he particularly enjoyed firing the collection attorney, who
until recently, had pursued his own debt.
So much time and energy were spent by the Board fighting enemies (real or
imagined) that all resources were exhausted.
Bankruptcy loomed.

At the same time,
the Board realized self-management was too time consuming, and hired a management
company to take charge, providing leadership and direction for the Board. A recall election was attempted by the Board to
remove the Treasurer. He showed up at
the recall meeting with his guitar and sang a folk song (sung in Russian, not English)
explaining why he should be retained.

All in attendance
voted for his ouster, and the Board prematurely declared success. When in fact, voter apathy had prevented the necessary number
of ballots for removal, but the Treasurer was stripped of his office and essentially
marginalized during the rest of his tenure.

At the same time,
things were heating up with the building replacement situation. The community missed mandated deadlines,
placing it in default and exposing it to penalties. Tied into this were secret, unauthorized
meetings conducted by the Board President with the owners of destroyed building. Negotiations were progressing for the
outright purchase of the slab with construction funds already collected in the
loss assessment.

In late summer, the President revealed this to the rest of the Board. Board members were sworn to secrecy while
details were being worked out. The President expressed complete faith in the building’s two owners, but warned of
enemies within the community bent on destruction.

In the weeks that
followed, a newly-added Board member reviewed the ramifications of the
proposal, and determined that the long term costs were too great to justify the
proposed settlement price. Further, the
funds in the loss assessment account could not be touched – being legally
obligated for use in construction. Any homeowner
loss assessment insurance proceeds (which accounted for a third of the funds)
would have to be returned. An election
by the owners to approve a special assessment would be required. This was not a do-able deal.

The conclusions
were presented to the Board, but ignored.
The President finally consented to consult with the HOA attorney for a
legal opinion. This never occurred, the
stated reason that the attorney was part of the conspiracy involved in
destroying the community. After weeks of
stalemate, a forced meeting between
the President and attorney occurred, with the attorney nixing the proposal. To prevent further interference by the newest
Board member, the rest of the Directors began holding impromptu undocumented
meetings.

Meanwhile,
collections efforts had ceased and homeowner delinquencies climbed to 50%. By October the community came within 24 hours
of having its water cut off, after defaulting on a payment plan. In
November the Board was finally convinced of the need for collections. The year ended with a special assessment to
bridge the cash shortfall and pay the lapsed insurance policy.

All communication with
the two owners of the destroyed building continued to filter exclusively
through the President, with no means of independent verification. The President delayed the implementation of
an audit, citing the need to resolve unspecified items. Fulton County revealed discrepancies in the
reasons for delays in obtaining a building permit: lies and interference by the President.

Later it was discovered
that the President was preparing to handle the rebuild through his own
construction firm. He also failed to
disclose he had been in negotiations to personally buy out the owners of the
destroyed building. He did not recuse
himself from votes and deliberations despite this conflict of interest.

With only two months
left prior to the next election, another group of homeowners rounded up proxies
and voted in new members. The President lost
his majority control in the Board, but remained defiant. He continued negative attacks against other
Board members, driving first one Board member, then that member’s replacement,
to resign rather than deal with an atmosphere of animosity.

His attacks intensified,
followed by the resignation of yet another Board member. He ceased paying assessments, and frequently
missed Board meetings. Finally, days
after the departure of the one final director who was his supporter, he
abruptly resigned. It would be four more
years before the Association collected his $10,000+ in unpaid assessments. These years would see more battles before the
war was won and the community finally put on a positive path.